- Richard Buxton is a contrarian investor, focused on lowly-valued companies
- His approach has proven a headwind in the short term, although long-term performance remains impressive
- We believe the fund is a good choice for exposure to larger UK companies
The Old Mutual UK Alpha Fund has been through a weaker period of performance over the past year. We would, however, expect the fund to go through shorter-term periods of underperformance given manager Richard Buxton's contrarian investment approach. His longer-term track record remains exceptional, bolstered by strong stock selection according to our analysis, and we believe the fund represents a good choice for exposure to larger UK companies. The fund currently features on the Wealth 150 list of our favourite funds across the major sectors.
Last year Richard Buxton was appointed Chief Executive Officer of Old Mutual Global Investors, which we felt could place pressure on his time as a fund manager. The team recently reemphasised that his role remains investment-oriented and he continues to be heavily involved with the fund's management. That said, we will continue to monitor the performance of the fund, as well as the manager's involvement, and update investors if our views change.
In recent years, UK growth companies have outperformed their value-orientated counterparts. Against a backdrop of ongoing economic uncertainty, growth stocks have been favoured for their certainty of earnings delivery. On the other hand, lowly-valued stocks, whose prospects may be tied to the state of the economy or which may be misunderstood by investors, have been shunned by investors and performed poorly in comparison.
Richard Buxton tends to focus on the latter type of business. As a contrarian investor, he seeks out-of-favour companies he believes will benefit from changes that are yet to be recognised by the market. This value-focused approach has contributed to the fund underperforming its benchmark, the FTSE All Share Index, over the past year.
Over this time a number of commodity-related holdings detracted from performance. Miner Glencore, oil producer Genel Energy, and electricity generator Drax have all suffered from the fall in commodity prices and contributed significantly to the fund's underperformance.
Retailers Home Retail Group and Tesco also disappointed, while the share prices of several banks held in the portfolio, including HSBC, Lloyds and Barclays, were weaker than the manager expected despite further progress made from a regulatory standpoint. Richard Buxton expects Lloyds and Barclays to boost dividend growth in future.
That said, a number of stocks contributed positively to performance over the same period, including house builder Taylor Wimpey, wealth management firm St James's Place, and software group Sage.
Over the year profits were taken from stocks that performed well but were beginning to look overvalued, in Richard Buxton's view - Unilever and media group RELX were sold from the portfolio. Elsewhere the manager topped up positions in companies that have been through a tougher time, but maintain their long-term growth prospects and look good value, in his opinion. This includes fashion house Burberry, as well as oil and commodity stocks, such as BP .
Please note the fund is a concentrated portfolio, which allows each holding to have a significant impact on performance, but it is a higher-risk approach.
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